When used in this report the terms "Company," "we," "us," or "our" mean Texas Industries, Inc. and subsidiaries unless the context indicates otherwise.

RESULTS OF OPERATIONS

We are a leading supplier of heavy construction materials in the United States through our three business segments: cement, aggregates and consumer products. Our principal products are gray portland cement, produced and sold through our cement segment; stone, sand and gravel, produced and sold through our aggregates segment; and ready-mix concrete, produced and sold through our consumer products segment. Other products include expanded shale and clay lightweight aggregates, produced and sold through our aggregates segment, and packaged concrete mix, mortar, sand and related products, produced and sold through our consumer products segment. Our facilities are concentrated primarily in Texas, Louisiana and California.

Management uses segment operating profit as its principal measure to assess performance and to allocate resources. Business segment operating profit consists of net sales less operating costs and expenses that are directly attributable to the segment. Corporate includes non-operating income and expenses related to administrative, financial, legal, human resources environmental and real estate activities. Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation or adjusted to reflect changes we made to prior period interim financial information related to our aggregate inventory in conjunction with our audited financial statements for the year ended May 31, 2009. See Note 1 of Notes to Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K for the year ended May 31, 2009.

The following is a summary of operating results for our business segments and certain other operating information related to our principal products.

Cement Operations



                                                       Three months ended
                                                           August 31,
           In thousands except per unit               2009            2008

           Operating Results
           Total cement sales                    $   78,460      $   111,404
           Total other sales and delivery fees        6,736            9,959

           Total segment sales                       85,196          121,363
           Cost of products sold                     69,859          104,557

           Gross profit                              15,337           16,806
           Selling, general and administrative       (4,674 )         (5,405 )
           Other income                               1,743            5,264

           Operating Profit                      $   12,406      $    16,665


           Cement
           Shipments (tons)                             915            1,218
           Prices ($/ton)                        $    85.70      $     91.43
           Cost of sales ($/ton)                 $    68.70      $     79.26

Cement operating profit for the three-month period ended August 31, 2009 was $12.4 million, a decrease of $4.3 million from the prior year period.

Total segment sales for the three-month period ended August 31, 2009 were $85.2 million compared to $121.4 million for the prior year period. Cement sales decreased $32.9 million as construction activity declined in both our Texas and California market areas. Our Texas market area accounted for approximately 71% of cement sales in the current period compared to 69% of cement sales in the prior year period. Shipments in both our market areas decreased 25% from the prior year period. Average cement prices declined 3% in our Texas market area and 13% in our California market area.

Cost of products sold for the three-month period ended August 31, 2009 decreased $34.7 million from the prior year period primarily due to lower shipments. Cement unit costs decreased 13% from the prior year period on lower variable costs, including labor, energy, supplies and maintenance costs. In addition, scheduled shutdowns for maintenance at our California and central Texas cement plants increased unit costs in the prior year period.

Selling, general and administrative expense for the three-month period ended August 31, 2009 decreased $0.7 million from the prior year period. Lower overall selling and administrative expenses, including wages and benefits, marketing, travel and outside service expenses as a result of our focus on cost reduction initiatives were offset in part by $0.6 million higher provisions for bad debts and $0.5 million higher defined benefit plan expense.

Other income for the three-month period ended August 31, 2009 decreased $3.5 million from the prior year period. Other income in the prior period included a lease bonus payment of $2.8 million received upon the execution of an oil and gas lease on property we own in north Texas and a gain of $1.7 million from the sale of emission credits associated with our California cement operations.

Aggregate Operations



                                                         Three months ended
                                                             August 31,
          In thousands except per unit                 2009              2008

          Operating Results
          Total stone, sand and gravel sales    $     27,794      $     40,679
          Total other sales and delivery fees         22,307            31,118

          Total segment sales                         50,101            71,797
          Cost of products sold                       39,155            59,456

          Gross profit                                10,946            12,341
          Selling, general and administrative         (2,705 )          (3,823 )
          Other income                                   398               407

          Operating Profit                      $      8,639      $      8,925


          Stone, sand and gravel
          Shipments (tons)                             3,423             5,201
          Prices ($/ton)                        $       8.12      $       7.82
          Cost of sales ($/ton)                 $       6.28      $       6.28

Aggregate operating profit for the three-month period ended August 31, 2009 was 8.6 million, a decrease of $0.3 million from the prior year period. Improvements in average prices for our stone, sand and gravel were offset by lower shipments.

Total segment sales for the three-month period ended August 31, 2009 decreased $21.7 million from the prior year period. Stone, sand and gravel sales decreased $12.9 million on 4% higher average prices and 34% lower shipments.

Cost of products sold for the three-month period ended August 31, 2009 decreased $20.3 million from the prior year period primarily due to lower shipments. Overall stone, sand and gravel unit costs were comparable to the prior year period.

Selling, general and administrative expense for the three-month period ended August 31, 2009 decreased $1.1 million from the prior year period primarily due to lower overall selling and administrative expenses, including wages and benefits, marketing, travel and outside service expenses as a result of our focus on cost reduction initiatives.

Other income for the three-month period ended August 31, 2009 was comparable to the prior year period.

Consumer Products Operations



                                                         Three months ended
                                                             August 31,
          In thousands except per unit                 2009              2008

          Operating Results
          Total ready-mix concrete sales        $     54,053      $     78,894
          Total other sales and delivery fees         15,485            16,330

          Total segment sales                         69,538            95,224
          Cost of products sold                       61,716            91,744

          Gross profit                                 7,822             3,480
          Selling, general and administrative         (3,204 )          (4,315 )
          Other income                                   133               385

          Operating Profit (Loss)               $      4,751      $       (450 )


          Ready-mix concrete
          Shipments (cubic yards)                        612               947
          Prices ($/cubic yard)                 $      88.46      $      83.30
          Cost of sales ($/cubic yard)          $      79.91      $      81.15

Consumer products operating profit for the three-month period ended August 31, 2009 was $4.8 million, an increase of $5.2 million from the prior year period. Improvements in ready-mix concrete average prices and lower raw material costs were offset in part by lower shipments.

Total segment sales for the three-month period ended August 31, 2009 were $69.5 million compared to $95.2 million for the prior year period. Ready-mix concrete sales for the three-month period ended August 31, 2009 decreased $24.8 million on 6% higher average prices and 35% lower shipments.

Cost of products sold for the three-month period ended August 31, 2009 decreased $30.0 million from the prior year period. Overall ready-mix concrete unit costs decreased 2% from the prior year period primarily due to lower raw material costs. Our raw material unit costs including the cost of transportation decreased approximately 8% from the prior year period.

Selling, general and administrative expense for the three-month period ended August 31, 2009 decreased $1.1 million from the prior year period primarily due to lower overall selling and administrative expenses, including wages and benefits, marketing, travel and outside service expenses as a result of our focus on cost reduction initiatives.

Other income for the three-month period ended August 31, 2009 decreased $0.3 million from the prior year period. Other income in the prior year period included lease bonus payments of $0.2 million received upon the execution of oil and gas lease agreements on property we own in north Texas.

Corporate



                                                         Three months ended
                                                             August 31,
          In thousands                                 2009              2008

          Other income                          $        378      $      2,185
          Selling, general and administrative         (9,671 )          (3,795 )

                                                $     (9,293 )    $     (1,610 )

Other income for the three-month period ended August 31, 2009 decreased $1.8 million from the prior year period. Other income in the prior year period includes a lease bonus payment of $1.6 million received upon the execution of an oil and gas lease agreement on property we own in north Texas that is not associated with any business segment.

Selling, general and administrative expense for the three-month period ended August 31, 2009 increased $5.9 million from the prior year period. The increase was primarily the result of $6.6 million higher stock-based compensation offset in part by $0.4 million lower wages and benefits and $0.3 million lower insurance expense. Our stock-based compensation includes awards expected to be settled in cash, the expense for which is based on their fair value at the end of each period until the awards are paid. The impact of changes in our stock price on their fair value increased stock-based compensation $1.6 million in the three-month period ended August 31, 2009 and reduced stock-based compensation $5.1 million in the three-month period ended August 31, 2008.

Interest

Interest expense incurred for the three-month period ended August 31, 2009 was $13.2 million, all of which was expensed. Interest expense incurred for the three-month period ended August 31, 2008 was $9.0 million, of which $1.8 million was capitalized in connection with our Hunter, Texas cement plant expansion project and $7.2 million was expensed.

Interest expense incurred for the three-month period ended August 31, 2009 increased $4.2 million from the prior year period primarily as a result of higher average outstanding debt due to the sale of $300 million aggregate principal amount of additional 7.25% senior notes on August 18, 2008. We have delayed completion of the Hunter, Texas cement plant expansion and do not expect to capitalize any interest in connection with the project during the remainder of fiscal year 2010.

Loss on Debt Retirements

On August 18, 2008, we sold $300 million aggregate principal amount of additional 7.25% senior notes due in 2013 at an offering price of $93.25. The net proceeds were used to repay our $150 million senior term loan and borrowings outstanding under our senior revolving credit facility in the amount of $29.5 million. We recognized a loss on debt retirement of $0.9 million representing a write-off of debt issuance costs associated with the mandatory prepayment of the term loan.

Income Taxes

Income taxes for the interim periods ended August 31, 2009 and August 31, 2008 have been included in the accompanying financial statements on the basis of an estimated annual rate. The primary reason that the tax rate differs from the 35% federal statutory corporate rate is due to percentage depletion that is tax deductible, state income taxes and deductions for income from qualified domestic production activities. Our estimated effective tax rate for fiscal year 2010 is 47.4% compared to 30.7% for fiscal year 2009.

LIQUIDITY AND CAPITAL RESOURCES

In addition to cash and cash equivalents of $32.2 million at August 31, 2009, our sources of liquidity include cash from operations and borrowings available under our senior secured revolving credit facility.

Senior Secured Revolving Credit Facility. On June 19, 2009, we amended and restated our credit agreement and the associated security agreement. The credit agreement continues to provide for a $200 million senior secured revolving credit facility with a $50 million sub-limit for letters of credit. The credit facility matures on August 15, 2012. Amounts drawn under the credit facility bear annual interest either at the LIBOR rate plus a margin of 3.5% to 4.0% or at a base rate plus a margin of 2.5% to 3.0%. The base rate is the higher of the federal funds rate plus 0.5%, the prime rate established by Bank of America, N.A. or the one-month LIBOR rate plus 1.0%. The interest rate margins are determined based on our leverage ratio. The commitment fee calculated on the unused portion of the credit facility ranges from 0.50% to 0.75% per year based on our leverage ratio. We may terminate the credit facility at any time.

The amount that can be borrowed under the credit facility is limited to an amount based on the value of our consolidated accounts receivable, inventory and mobile equipment. This amount, called the borrowing base, may be less than the $200 million stated principal amount of the credit facility. Our current borrowing base under our amended agreement is $166.5 million. No borrowings were outstanding at August 31, 2009; however, $28.4 million of the borrowing base was utilized to support letters of credit.

All of our consolidated subsidiaries have guaranteed our obligations under the credit facility. The credit facility is secured by first priority security interests in all or most of our existing and future consolidated accounts, inventory, equipment, intellectual property and other personal property, and in all of our equity interests in present and future domestic subsidiaries and 66% of the equity interest in any future foreign subsidiaries, if any.

The credit agreement contains a number of covenants restricting, among other things, prepayment or redemption of our senior notes, distributions and dividends on and repurchases of our capital stock, acquisitions and investments, indebtedness, liens and affiliate transactions. We are not required to maintain any financial ratios or covenants unless an event of default occurs or borrowing availability under the borrowing base is less than $40 million, in which case we must comply with a fixed charge coverage ratio. We are permitted to pay cash dividends on our common stock as long as the credit facility is not in default, the fixed charge coverage ratio is greater than 1.1 to 1.0 and borrowing availability under the borrowing base is more than $50 million. We were in compliance with all of these loan covenants as of August 31, 2009.

As of August 31, 2009, there have been no material changes to our material contractual obligations described in our Annual Report on Form 10-K for the year ended May 31, 2009.

During October 2007, we commenced construction on a project to expand our Hunter, Texas cement plant. In light of current economic and market conditions, we have delayed completion of the project. We believe it is likely that current cement demand levels in Texas will not permit the new kiln to operate profitably if the project is completed as originally scheduled. We expect cement demand to rebound in the future and we will resume construction when future economic and market conditions indicate it is appropriate. The pause in construction began in May 2009. As of August 31, 2009, we have incurred approximately $294.5 million, excluding capitalized interest of approximately $16.3 million related to the project, of which $288.6 million has been expended. The project is 85-90% complete. Until we determine the date that we will resume construction, we cannot accurately estimate the cost of completing the project.

We expect cash and cash equivalents, cash from operations and available borrowings under our senior secured revolving credit facility to be sufficient to provide funds for capital expenditure commitments currently estimated at $20 million to $30 million for fiscal year 2010 (assuming we do not resume construction on the Hunter plant expansion during fiscal year 2010), scheduled debt payments, working capital needs and other general corporate purposes for at least the next year.

Cash Flows

Net cash provided by operating activities for the three-month periods ended August 31, 2009 and August 31, 2008 was $14.5 million and $10.6 million, respectively. The increase was primarily the result of changes in working capital items which offset lower income from operations excluding stock-based compensation expense.

Net cash provided by investing activities for the three-month period ended August 31, 2009 was $1.5 million. Net cash used by investing activities for the three-month period ended August 31, 2008 was $59.6 million.

Capital expenditures, including capitalized interest, incurred in connection with the expansion of our Hunter, Texas cement plant were $4.6 million and $46.7 million for the three-month periods ended August 31, 2009 and August 31, 2008, respectively. Capital expenditures, including capitalized interest, incurred in connection with the expansion and modernization of our Oro Grande, California cement plant were $1.3 million for the three-month period ended August 31, 2008. Capital expenditures for normal replacement and technological upgrades of existing equipment and acquisitions to sustain our existing operations were $0.8 million and $40.7 million for the three-month periods ended August 31, 2009 and August 31, 2008, respectively. Capital expenditures in the prior year period include $25.6 million incurred to acquire aggregate operations in central Texas through a deferred like-kind-exchange transaction. Completion of the transaction reduced the cash designated for property acquisitions held by a qualified intermediary trust by $27.0 million.

We elected to receive distributions and policy surrenders from life insurance contracts purchased in connection with certain of our benefit plans totaling $8.1 million and $3.5 million in the three-month periods ended August 31, 2009 and August 31, 2008, respectively.

Net cash used by financing activities for the three-month period ended August 31, 2009 was $3.6 million. Net cash provided by financing activities for the three-month period ended August 31, 2008 was $128.0 million.

We sold $300 million aggregate principal amount of additional 7.25% senior notes due in 2013 at an offering price of 93.25% in the three-month period ended August 31, 2008. The net proceeds were used to repay our $150 million senior term loan and borrowings outstanding under our senior revolving credit facility in the amount of $29.5 million.

OTHER ITEMS

Environmental Matters

We are subject to federal, state and local environmental laws, regulations and permits concerning, among other matters, air emissions and wastewater discharge. We intend to comply with these laws, regulations and permits. However, from time to time we receive claims from federal and state environmental regulatory agencies and entities asserting that we are or may be in violation of certain of these laws, regulations and permits, or from private parties alleging that our operations have injured them or their property. See Note 9 of Notes to Consolidated Financial Statements presented in Part I, Item 1 of this report for a description of certain claims. It is possible that we could be held liable for future charges which might be material but are not currently known or estimable. In addition, changes in federal or state laws, regulations or requirements or discovery of currently unknown conditions could require additional expenditures by us.

Market Risk

Historically, we have not entered into derivatives or other financial instruments for trading or speculative purposes. Because of the short duration of our investments, changes in market interest rates would not have a significant impact on their fair value. The fair value of fixed rate debt will vary as interest rates change.

Our operations require large amounts of energy and are dependent upon energy sources, including electricity and fossil fuels. Prices for energy are subject to market forces largely beyond our control. We have generally not entered into any long-term contracts to satisfy our fuel and electricity needs, with the exception of coal which we purchase from specific mines pursuant to long-term contracts. However, we continually monitor these markets and we may decide in the future to enter into long-term contracts. If we are unable to meet our requirements for fuel and electricity, we may experience interruptions in our production. Price increases or disruption of the uninterrupted supply of these products could adversely affect our results of operations.

Critical Accounting Policies

The preparation of financial statements and accompanying notes in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported. Changes in the facts and circumstances could have a significant impact on the resulting financial statements. The critical accounting policies that affect the more complex judgments and estimates are described in our Annual Report on Form 10-K for the year ended May 31, 2009.

Recent Accounting Developments

In May 2009, the Financial Accounting Standards Board issued SFAS No. 165, "Subsequent Events." SFAS No. 165 establishes authoritative accounting and disclosure guidance for recognized and non-recognized subsequent events that occur after the balance sheet date but before financial statements are issued. SFAS No. 165 also requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. SFAS No. 165 was effective for our Company beginning with our Quarterly Report on Form 10-Q for the three-month period ended August 31, 2009, and will be applied prospectively. The adoption of SFAS No. 165 had no impact on our consolidated financial statements.

In February 2007, the Financial Accounting Standards Board issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115." SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. We adopted SFAS No. 159 effective June 1, 2008. At this time, we have not elected to use the fair value measures permitted by this standard.

In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure requirements about fair value measurements. This standard was effective for our Company on June 1, 2008. However, in February 2008, the FASB released FASB Staff Position No. FAS 157-2 "Effective Date of FASB Statement No. 157," which delayed the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). SFAS No. 157 became effective for all nonfinancial assets and nonfinancial liabilities on June 1, 2009. The adoption of SFAS No. 157 for our nonfinancial assets and nonfinancial liabilities has not had a current material impact on our consolidated financial statements.

Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the

Private Securities Litigation Reform Act of 1995

Certain statements contained in this quarterly report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, the impact of competitive pressures and changing economic and financial conditions on our business, the cyclical and seasonal nature of our business, the level of construction activity in our markets, abnormal periods of inclement weather, unexpected periods of equipment downtime, unexpected operational difficulties, changes in the cost of raw materials, fuel and energy, changes in the cost or availability of transportation, changes in interest rates, the timing and amount of federal, state and local funding for infrastructure, delays in announced capacity expansions, ongoing volatility and uncertainty in the capital or credit markets, the impact of environmental laws, regulations and claims and changes in governmental and public policy, and the risks and uncertainties described in our reports on Forms 10-K, 10-Q and 8-K. Forward-looking statements speak only as of . . .